Yahoo surges as stocks rise

SANTA CLARA, Calif. (CBS.MW) -- Portal giant Yahoo's shares rose 6.9 percent Thursday after the company announced its first-ever job cuts, a 12 percent reduction, and a penny-per-share profit for the first quarter.

Yahoo shares closed up $1.10 at $16.96.

"We've determined what Yahoo needed to ensure the long-term value of the company," said Chairman and CEO Tim Koogle. "And we determined what we can stop doing without compromising the value proposition."

The company was clear that slow revenue growth will affect its outlook for the rest of the year.

Yahoo said it expects to report sales of $165 million to $185 million for the second quarter. The Silicon Valley-based company also expects to report a pro forma loss or to break even in the second quarter.

However, the fiscal year results should be better. On a pro forma basis, Yahoo expects to earn 2 cents to 6 cents a share for the year on revenue of $700 million to $775 million.

Less means more

Yahoo expects to reach its financial targets by cutting its exposure to Internet customers, among other ways. In a conference call with investors and analysts, Yahoo CFO Sue Decker said as much as 80 percent of this year's advertising sales will come from more traditional sources instead of the dot-com companies that fueled Yahoo's rapid growth -- and subsequently, rapid decline in recent quarters.

"To show you how quickly the dot-com piece is dropping, expenditures from dot-com pure plays have dropped consistently" in recent months, she said.

Since December, advertising from dot-coms as a percentage of total revenues is down 50 percent. About 70 percent of Yahoo's sales in the first quarter were from traditional sources, such as Compaq, Ralston-Purina and Texas Instrument, she said.

The Internet portal said it had earned pro forma net income of 1 cent per share on sales of $180.2 million, nearly 22 percent below the year-ago period's result. Last year, Yahoo
YHOO
made 10 cents a share on sales of $230.8 million. Wall Street had been expecting a profitless quarter on sales of about $170 million.

On a net basis, including charges related to investments, compensation and goodwill, Yahoo lost 2 cents a share, or $11.4 million for the quarter, compared to a gain of 11 cents a share, or $67.6 million.

Cutting costs, cutting jobs

Koogle, who is stepping aside as Yahoo's chief executive, said that about 12 percent, or 420, of the company's 3,510 employees would be eliminated in the first set of layoffs for the 7-year-old company. Yahoo expects to save $7 million to $9 million a quarter from the layoffs.

The cuts will come from general corporate trimming as well as the elimination of certain services on the portal. Exactly which services will be slashed hasn't been announced.

Jeff Mallett, chief operating officer, said that the softening in Yahoo's core businesses has stabilized since the beginning of last month.

"We're using the time to really get focused on the areas that represent the highest growth opportunities for us," Koogle said in an interview.

Premium Yahoo Finance services, for example, which subscribers receive for a charge, will be beefed up. Last month, Yahoo Finance successfully introduced the Yahoo Market Tracker for stocks.

That's prompted Yahoo to launch new for-fee services in the next few weeks to small businesses and consumers. The premium services "are already resonating" to other Yahoo customers, he said.

"It's intriguing the number of consumers who are the more serious personal investors," he said. "That's the great thing about our platform."

Yahoo also is cutting some secondary services; limiting discretionary spending in marketing, distribution and promotional costs; outsourcing some operations; and centralizing businesses.

A billion a day

Koogle crowed about Yahoo's more than 190 million consumers and the stunning fact that more than 1 billion pages were viewed per day during March.

He said that Yahoo "is scanning the landscape" for acquisitions and other investments. "We're being a little careful until the (industry) consolidation gets a little firmer," he said. "But we haven't stopped looking."

As of March 31, Yahoo had $1.7 billion in cash and marketable securities on hand. That money will be used for investments, among other things, as well as a long-term $500 million stock buyback, Koogle said.

"We have a strong balance sheet and numerous assets that give us a platform to really grow," he said. "No doubt that many business segments are in the midst of this cyclical economic slowdown, but it's a temporary thing."

Wall Street's take

Analysts though are focused on the revenue growth, driven as it is by ad spending, and the company's management.

Though Merrill Lynch's Henry Blodget didn't change his earnings estimates, he did say in a research note Thursday that the company's international management turnover and revenue growth is an issue. He added that the company's appointment of Koogle's successor as CEO could be a near-term catalyst for the stock. Notably, he said the company's position is one of a challenger to AOL Time Warner and Microsoft.

CS First Boston also noted that filling the CEO position might also be a near-term boost to Yahoo stock.

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